San Francisco Fed: Rebound After Bank Crisis Slower Than Average Recovery

Recoveries after a financial crisis are usually slow because the economy needs to work off excess credit, the Federal Reserve Bank of San Francisco said.

“Any forecast that assumes the recovery from the Great Recession will resemble previous post-World War II recoveries runs the risk of overstating future economic growth, lending activity, interest rates, investment, and inflation,” Oscar Jorda, a research adviser at the district bank, said in a report.

The report refers to the economic performance of 14 advanced economies over 140 years.

“Compared with the average U.S. post-World War II recession, the forecast for real GDP should be lowered 0.6-0.8 percentage point in 2012, 0.5-0.7 percentage point in 2013, finally returning almost to normal by 2014,” he said, referring to gross domestic product.

Employment today is about 10 percent lower than on average after other postwar recessions, while investment is down 30 percent, according to the report.

Forecasters should also revise down their inflation projections by as much as a percentage point over the next three years, he said.